Question

When the proposed dividend exceeds 20% of paid up capital, percentage of profit transferred to general reserve is _______.

• A. 2.5%
• B. 5%
• C. 7.5%
• D. 10%

Answer 1

The correct option is D 10%

No dividend shall be declared or paid by the company for any financial year out of the profits of the company except after the transfer to the reserves of the company a certain percentage of the profits of that financial year.

The major guidelines are as under:

1) If dividend proposed is more than 10% and less than 12.5% of the paid up capital- 2.5% of the current years profits to be transferred to reserves.

2) If dividend proposed is more than 12.5% but does not exceed 15% of the paid up capital- 5% of the current years profits to be transferred to reserves.

3) If dividend proposed is more than 15% but does not exceed 20% of the paid up capital- 7.5% of the current years profits to be transferred to reserves.

4) If dividend proposed is more than 20% - 10% of the current years profits to be transferred to reserves.